STATE BANKING BOARD OF ILLINOIS

Meeting of Tuesday, September 25, 2001

Office of Banks and Real Estate
310 South Michigan Avenue, Suite 2130, Chicago, Illinois 60604-4278

MEMBERS PRESENT

William A. Darr
Commissioner
Office of Banks & Real Estate
Chicago, Illinois 60604-4278

Joy French Becker
President
Farmers State Bank & Trust Company
Jacksonville, Illinois 61651-1127

Thomas L. Bugielski
President
Founders Bank
Worth, Illinois 60482

A. Dean Decker
President and CEO
Central Trust and Savings Bank
Geneseo, Illinois 61254-0089

John Eck
Senior Vice President
ABN AMRO Bank N.V.
Chicago, Illinois 60603

Gary N. Edwards
President and CEO
State Bank of Lima
Lima, Illinois 62348

Mark G. Field
Chairman, President and CEO
The Farmers Bank of Liberty
Liberty, Illinois 62347-0196

Jeanne N. Gernentz
Vice President
Bank of Pontiac
Odell, Illinois 60460

Donald Gutowski
Class A Member
Norridge, Illinois 60656

Lee J. Plummer
Class A Member
Jerseyville, Illinois 62052

Paul V. Reagan
Senior Vice President & US General Counsel
Harris Trust and Savings Bank
Chicago, Illinois 60606

Asif Yusuf
Class A Member
Westchester, Illinois 60154

STAFF PRESENT

Alan Anderson, Legislative Liaison
Office of Banks and Real Estate

Arthur J. Appl, Jr., Director
Division of International Bank Supervision

John Arthur, Director
Division of Specialized Activities Supervision

Scott D. Clarke, Assistant Commissioner
Bureau of Banks and Trust Companies

Marc A. Edwards, Director
Division of Commercial Bank Supervision - Springfield

Wes Maynard, Director
Division of Commercial Bank Supervision - Chicago

Michael Morehead, Chief Counsel
Bureau of Banks and Trust Companies

Dale R. Turner, General Counsel
Office of Banks and Real Estate

Pamela Jones, Administrative Assistant
Bureau of Banks and Trust Companies

Chairman Darr called the meeting to order at 10 am and thanked everyone for attending. Mr. Gary Edwards made a motion to accept the minutes of the last meeting of August 2, 2000. Mr. Mark Field seconded the motion. The motion was unanimously approved.

Mr. Scott Clarke, Assistant Commissioner, Bureau of Banks and Trust Companies, highlighted the agency and state response to the September 11, 2001 terrorist attacks in New York, Washington, D.C. and Pennsylvania. On September 11 both OBRE’s Springfield and Chicago offices were evacuated. This was done by action of the Governor. The State maintains an Emergency Operations Center. Representatives from critical state and federal agencies assemble to gather information and monitor the situation any time there is a major emergency. Through the Center, the agency was prepared to arrange with the Illinois State Police and the Department of Transportation’s Division of Aeronautics an airlift of currency between Federal Reserve banks or other correspondent banks in the event that there were high liquidity demands or unusual withdrawls of financial institutions. The Agency initiated calls to many of our regulated institutions to check on their liquidity and the response of the public to the incidents. OBRE issued an emergency proclamation under the Banking Emergencies Act that authorized all banks impacted by the terrorist events or related emergencies to close. The Act treats such days as a legal holiday for banking purposes. We had a number of banks that closed and they initiated contact with us. We did not detect any signs of liquidity problems or public panic at any of our institutions.

As a result of the President’s declaration of the national emergency and his military call up, there are several laws that impact financial institutions. The Soldiers and Sailors Civil Relief Act, which hasn’t been activated since the Persian Gulf conflict, provides for a cap on interest rates and a ceiling for service members who are called up for active duty. The service members must demonstrate their income prior to call up and their income at call up and if there is a decrease in income and if it proves to be a hardship, there are interest rate cap provisions and restrictions on foreclosures for service men/woman who are activated during times of national emergencies.

There also is the little known statute, the Trustees Emergency Act. This act provides that co-trustees of a trust instrument who are called up and activated during a national emergency can have an alternate trustee designated for the period of time the co-trustee is been activated so that the trust can still function.

The President also issued an Executive Order freezing the assets of certain individuals and organizations. This Executive Order targets terrorist organizations. This is a standard practice for other type incidents from other conflicts and the Treasury’s Office of Foreign Asset Control (OFAC) maintains a central listing of people whose assets are required to be frozen or who are prohibited from opening new accounts. At this point we have not had many questions from financial institutions about how this provision operates. The memos from the Treasury may not have filtered down to everyone; although in the smaller rural communities it would be unusual to have this type of activity.

Mr. Clarke asked the board for their suggestion on how to disseminate the provisions of the above stated information that does not present itself on a regular basis. Mr. Field suggested sending a memo to the banks highlighting the provisions.

Chairman Darr requested a report on the status of each Division.

Mr. Art Appl, Director of International Bank Supervision discussed the four charts included in the meeting materials. Mr. Appl mentioned that the number of foreign banking offices continues to decline due to consolidation and mergers. Mr. Clarke asked Mr. Appl to highlight the shared national credit program for the members benefit.

Mr. Wes Maynard, Director of Commercial Bank Supervision – Chicago and Mr. Marc Edwards, Director of Commercial Bank Supervision – Springfield gave a consolidated Commercial Division report as requested by the members at the last board meeting. Mr. Maynard discussed the four charts included in the meeting materials. He highlighted that even though the Agency regulates fewer banks, the banks represent a larger value of total assets than before. Mr. Maynard indicated that the majority of the banks were either a “1” or “2” rated.

Marc Edwards reported to the board that currently his division has 23 downstate institutions under some type of corrective action program. OBRE is trying to become more proactive instead of reactive with regards to enforcement action. Mr. Edwards stated that the agency is trying to correct the problems at the institutions before they get out of hand.

Mr. John Eck, Senior Vice President, ABN AMRO Bank, asked what the backlog of de novo banks was within the Bureau. Mr. Maynard stated that in the Chicago area there is one de novo application pending and Mr. Edwards stated that in the downstate area there is also one de novo application pending. Mr. Clarke said that de novo applications in general were down at this time. In 1999 we had 17 new applications. In 2001 there has been one or two new applications. It appears that it is taking the de novos longer to raise the capital needed to finance the opening of the bank. Currently, approximately 10 percent of the regulated institutions are institutions five years old or less.

Mr. Alan Anderson, Legislative Liaison, provided a summary of the 2001 legislative session and the banking related legislation that was signed into law. The Spring Session of the General Assembly was a busy one. The Governor signed 494 bills into law. The one key provision was that the bank basic lending limit was increased from 20% to 25% of the banks unimpaired capital and unimpaired surplus.

Mr. Michael Morehead, Chief Counsel provided a summary of the legal interpretive letters issued this year. Mr. Morehead also discussed two policies issued by the agency this year. The first one, which OBRE plans to promulgate, as an administrative rule, is the appeal of examination findings. The object of this rule is to ensure fair and consistent supervision of all institutions examined by the agency.

The other policy discussed was Guidance Concerning The Employment Practices of Regulated Entities. The need for this policy arose when the agency found out that an institution discovered that they had employed a convicted felon. This rule sets some guidelines on establishing formal background investigation procedures for all employment situations.

Mr. Clarke reported that the Commissioner's office placed Independent Trust Corporation, Orland Park, Illinois into receivership in April 2000 due to an apparent misappropriation of approximately $68.1 million. The accounting firm of PriceWaterhouseCoopers was appointed the receiver of the failed trust company. As of the date the trust company was placed in receivership, it had approximately $2 billion in fiduciary assets.

Chairman Darr reported on the results of the Predatory Lending Survey.

There being no further business before the board, Mr. Mark Field made a motion to adjourn, seconded by Ms. Joy Becker, that the meeting be adjourned. The motion was unanimously approved. The meeting adjourned at 12:35 PM.